Over the years, SA has viewed an increase in exports as essential for economic growth and job creation. The National Development Plan states that 6% annual growth in exports is needed to generate a 5.4% increase in real GDP and create 11-million new jobs by 2030.
In 2020, the economic policy unit of the National Treasury released a research paper titled “Economic transformation, inclusive growth, and competitiveness: Towards an economic strategy for SA”. Among other strategies, the paper calls for the government “to promote export competitiveness and actively pursue regional growth opportunities in order to leverage global and regional value chains for export growth”.
In 2020, President Cyril Ramaphosa’s Economic Reconstruction Recovery Plan also emphasised the importance of exports, particularly in manufacturing goods, in supporting economic recovery.
While the merits of export-led growth are well documented, the government should remain wary when applying this approach to developing SA’s cannabis sector. Key lessons must be learnt from the spread of Covid and subsequent lockdowns, which proved the perils of not developing an adequate local market for goods and services. SA’s economy, which is highly dependent on the export of minerals, was battered as key markets for our exports closed their borders to minimise the spread of the virus. The country is still recovering from the effects.
In March 2022, StatsSA reported that in the last quarter of 2021 the economy was 1.8% smaller than it was in the first quarter of 2020. The draft cannabis master plan, developed by the department of agriculture, land reform & rural development and several other departments, seeks to establish a legislative framework that will enable the commercialisation of the cannabis industry.
Some of the master plan’s key proposals include increasing the volumes and variety of cannabis products in SA, establishing and increasing the capacity of local farmers to produce cannabis and hemp, and creating opportunities for the establishment of small and medium enterprises across the cannabis value chain. While there is value in catering to an export market, the government ought to place greater emphasis on creating a local market that supports and incorporates local cannabis farmers.
Global data on the cannabis trade indicates that there is much value in developing local markets. According to BDSA, an international cannabis data company, global medical and nonmedical cannabis sales for 2021 reached just over $35bn (R550bn) and will surpass $61bn in 2026. However, imports and exports accounted for less than 10% of the figure. Countries that have led the way in legalising cannabis for nonmedical use, such as Canada, Mexico and some states in the US, have developed formidable local markets and manufacturing capacities.
In SA, local growers have for many years cultivated the crop and sold it illicitly. The World Health Organisation notes that SA is the third-largest illegal cannabis producer in the world, producing about 2,500t every year. This indicates the strength of local demand, a market that the government ought to tap into.
Thus, the task for the government should not only be decriminalising the recreational use of cannabis, but also legalising the sector to support commercialisation via the development of a local market.
Important lessons about legalising the recreational use of cannabis can be found in other countries that have embarked on this path. In 2008 Canada, for example, passed legislation that regulates production, possession, product accessibility (only for those 18 and above), product safety and standardisation, advertising and marketing. This might be applicable in the South African market.
The government’s localisation agenda should inform the approach to developing a local industry. This means providing small farmers and processors with the necessary expertise, infrastructure and financial support to become competitive in what is likely to be a highly lucrative market.
Similarly, regulation should not be designed in such a way that only well-resourced players can comply and small players are excluded. If small players cannot gain entry to the formal market, they will continue to operate on an illicit basis.
As things stand, the government is struggling to curb the illicit market. One feasible intervention would be to ensure that international players are required to work with local counterparts, partly to provide expertise and skills, and partly to facilitate access to export markets. Investment incentives and tax rebates would also provide a major boost to smaller players.
Ultimately, if SA hopes to see cannabis as a catalyst for economic growth, the government must put in place a legislative framework that supports local market development and the creation of a local economy that contributes to the broader national development agenda.
• Maposa is a public policy and stakeholder relations officer at Frontline Africa Advisory
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